M&A Deals Under Sanctions: Key Risks and Protective Measures

Introduction

Since 2022, M&A transactions involving Russian assets have undergone significant transformation. Initially, deals were rushed and executed on an “as-is” basis, but by 2023–2024, agreements became more structured and legally refined. This trend continues in 2025, with parties increasingly relying on classic market protections, complex legal mechanisms, and meticulous deal structuring. However, as transactions grow more sophisticated, so do the associated risks—for both buyers and sellers, as well as for the management of the assets involved. Below, we outline the key challenges and mitigation strategies in today’s M&A landscape.

1. Regulatory Hurdles: Legal Uncertainty as the New Normal

Since 2022, most deals involving investors from “unfriendly” jurisdictions require approval from the Government Commission on Foreign Investment. Approval comes with strict conditions, including:

• A mandatory valuation report
• A minimum 60% discount from market value (up from previous thresholds)
• A 35% voluntary contribution to the federal budget

The Federal Antimonopoly Service (FAS) has also intensified scrutiny, particularly for deals involving large or strategic assets. Non-compliance with FAS requirements—such as business restructuring or pricing adjustments—can lead to deal cancellation or refusal of notarization.

Recommendation:

• Define acceptable regulatory conditions in transaction documents upfront.
• Establish clear boundaries for permissible restrictions.

2. Information Asymmetry: Due Diligence Isn’t Foolproof

Buyers often lack full visibility into an asset’s condition because:

• Due diligence relies on seller-provided documents, which may be incomplete.
• Post-signing operational changes may not be captured.

Mitigation Strategies:

• Representations & Warranties (R&W): Allow buyers to walk away if material discrepancies emerge before closing.
• Disclosure Letters: Sellers should obtain written confirmations from management to limit liability for misrepresentations.
• “Seller’s Knowledge” Definition: Explicitly define this in contracts to avoid disputes.

3. Payment Risks: Ensuring Synchronicity of Payment and Ownership Transfer

Parties use several mechanisms to secure transactions:

• Letters of Credit (funds released upon ownership transfer confirmation).
• Escrow Accounts (payment triggered by pre-agreed conditions).
• Notary Deposit (similar to a letter of credit but overseen by a notary).
• Deferred Registration & Installments (ownership transfers only after full payment).

These tools reduce the risk of non-performance by either party.

4. Confidentiality: Protecting Business Value

Premature deal leaks can:

• Depress asset valuations.
• Trigger key employee or partner departures.

Solution:

• Binding NDAs (Non-Disclosure Agreements).
• LOIs (Letters of Intent) & MOUs (Memoranda of Understanding) with enforceable confidentiality clauses.

5. Buyer Risks: Beyond Surface-Level Threats

a) Acquiring a Troubled Asset

• Risk: Seller exits jurisdiction post-deal, making claims unenforceable.
• Protection:
  • Holdbacks or deferred payments.
  • Third-party guarantees.

b) Losing Key Partners

• Risk: Ownership changes disrupt supplier/customer relationships.
• Solution: Pre-deal partner negotiations and contract stability analysis.

c) Seller Competition

• Risk: Former owner re-enters the market.
• Prevention: Non-compete clauses (must comply with antitrust laws on duration/scope).

6. Seller Risks: Securing Payment Post-Closing

Buyers may later claim damages if contractual safeguards are weak.

Protective Measures:

• Basket & De Minimis Clauses (minimum claim thresholds).
• Liability Caps.
• Exclusion of Certain Damages.
• Explicit “No Reversal” Clause (prevents forced asset return).

7. Management Risks: Caught Between Loyalty and Liability

Executives face:

• Subsidiary liability risks (e.g., bankruptcy-related claims).
• Job insecurity post-acquisition.

Recommendations:

• Document all decisions to shield against future claims.
• Negotiate retention bonuses in deal terms.
• Ensure pre-closing payout of incentives.

Sanctions-era M&A deals demand meticulous structuring and proactive risk management. By leveraging legal safeguards—from escrows to non-competes—parties can navigate regulatory turbulence, information gaps, and post-transaction disputes. A well-prepared deal is not just about signing documents; it’s about ensuring enforceability and long-term stability for all stakeholders.
In today’s high-risk environment, prevention is better than litigation. Tailored legal frameworks and strategic foresight are essential for successful M&A execution.